Thursday, August 16, 2007

Minor issues range from cost overruns due to coverage problems to concerns about Wi-Fi equipment emitting too much radiation.

The main problem, says the WSJ story, is that the original business model no longer works:

"The Wi-Fi companies envisioned being able to offer subscription service to consumers at rates that were significantly cheaper than phone and cable broadband. But the unexpectedly high costs of building Wi-Fi networks -- the price tag can easily run into the tens of millions for a big city -- coupled with lower prices for broadband from some phone companies, has made it tougher for consumer Wi-Fi to be competitive."

"...[I]nitial forecasts for Wi-Fi subscriptions used to justify the investment in these networks have proven to be overly optimistic by a wide margin. In many cases, 15% to 30% of an area's population was expected to sign up for muni Wi-Fi. But only 1% to 2% have signed up so far figures Glenn Fleishman, editor of an industry blog called Wifinetnews.com."

In many cases, Wi-Fi companies are now seeking to renegotiate their contracts, wanting the municipal government to sign on as a customer in order to guarantee a revenue stream. The Business Week story quotes a Wi-Fi executive as saying, "There's no one that I am aware of right now who'd build a network without the city as a paying customer. The days of a service provider coming in without a city commitment are over."

That makes Milwaukee's failed contract with Midwest Fiber Networks look less like an opportunity for a better deal down the road and more like a sure bet that the city will be hit up for big bucks by whichever "white knight" provider rides into town. Knowing that it's coming, Milwaukee would be smart to conduct its own market study of the potential for paid subscribers outside city government, in order to be on a level playing field during contract negotiations.